Planning for your family’s long-term stability takes a lot of work. For example, you have to set up a range of complex family legal documents, including a will. In this article, we’ll show you how to ensure a good financial future for your family.
Building an Emergency Fund
The key to any future financial plan is saving. Even just for personal use, you should aim to have at least 3-6 months of income ready to go at any time. If you’re saving for your whole family, you could push this to 12 months.
Put this money in a high-yield savings account. These have higher interest rates, meaning you’ll effectively earn money as you save it. You can even open several savings accounts for different family members.
Getting Adequate Insurance Coverage
You should invest in a life insurance plan to ensure steady payments for your family after you’re gone. Here are the main types of life insurance:
● Term life insurance covers you for a specific period of time.
● Whole life insurance offers coverage for your entire life.
● Universal life insurance gives you more payment flexibility.
● Variable life insurance lets you put money into investments.
● Survivorship life insurance covers two people, usually partners.
Beyond this, you should also look at health insurance. The right package here will stop you from dipping into your finances too often.
You’ll then have more money to give to your family. In fact, some plans extend coverage to the whole family, helping them save money in the process. It’s also worth looking for disability insurance and home coverage. You never know when illness might strike, after all. You also need to protect your home from potential damages – especially if your family will inherit it.
Managing Your Debts
You should do your best to address outstanding debts as soon as possible. If you don’t, then the inheritance you leave behind will go toward them. Whatever happens, avoid the temptation to take out a loan to pay these off. This just leads to a vicious cycle.
Using the avalanche method, focus on high-interest debts first. You’ll then have less debt to pay overall. Alternatively, the snowball method can give you the motivation you need to tackle larger debts over time.
It’s even possible to negotiate lower interest rates and fees with creditors. You may even plan to set up an irrevocable living trust. You can’t easily alter this trust’s contents, making them mostly immune to creditors.
Consider Careful Long-Term Investments
With the right investment strategy (and a lot of luck), you’ll have a passive income that pays off for years. Here are a few common options for your portfolio:
● Stocks, which are high in risk but offer high potential returns.
● Bonds, which have a lower risk (but lower return) than stocks.
● Mutual funds, which pool money from investors.
● Real estate, which is always rising in value.
● Cryptocurrencies, which are decentralized and unregulated.
However, none of these are guaranteed paydays. You should rebalance your portfolio every six months to keep up with the ever-changing market. Only make an investment if sources you trust are sure it will pay off.
Creating an Education Savings Plan
A good, practical way to help your family is to create a 529 account. The money in this plan will go towards funding their education. For example, it could pay for a family member’s university, college, or vocational school tuition.
The plan’s earnings and withdrawals are also tax-free. However, this rule only applies when the family genuinely uses the money for education. Some states also offer extra tax benefits. On the topic of tax, 529 plans also aren’t in your taxable estate.
When setting up this plan, specify the beneficiary – i.e., the person who will receive the money. It’s also worth naming a successor owner. They can take over the 529 plan on your behalf after you die.
Creating Your Estate Plan
Your estate will ultimately determine who in the family gets your assets. You must think carefully about everything you own and whom you want to give money or property to. Many people neglect this until it’s too late, thinking it takes forever. With an online template, however, you can set up a will in no time. You’ll also save a lot when it comes to lawyer fees. To ensure everything fits your wishes, make sure you choose an executor you trust. They must be ready to make tough decisions on your behalf.
You must continuously adjust your will as your family situation changes. You might, for example, end up with more beneficiaries than you expected. Ultimately, your will needs to suit your wishes as closely as possible.
Conclusion
Looking after your finances today will help your family tomorrow. A comprehensive estate with a 529 plan and few debts is the best way forward. You’ll then be able to leave more to your loved ones.